A sovereign monetary system’s success relies on a number of things remaining in place. Cash, which plays an absolutely critical role, is one of these – and it cannot easily be replaced.
Though there have been doubts around cash’s role in the payments mix, what with the rise of digital and cardless transactions, these must not extirpate the crucial part that cash plays in the stability of a nation’s economy. Indeed, the premature adoption of under-regulated and inherently volatile digital, or ‘crypto,’ currencies could have the potential to undermine whole countries.
There are broad risks in allowing cryptocurrency a significant position in the make up of sovereign currencies. The most important of these is that it shifts the power to control the monetary supply, validate transactions and supervise economic exchanges away from centralised state institutions and towards corporate, non-state entities.
The role that state institutions currently hold to ‘validate’ exchanges and transactions is what underpins economic trust, and so without this trust may crumble. Sovereignty is very much at the core of the latest global conversations around cryptocurrency adoption. And Europe’s central banks are demonstrating, through their defiant stance on Facebook’s Libra, that they are not prepared to introduce sweeping changes to sovereign monetary systems any time soon.
Indeed, Facebook has attracted more than just scepticism from European regulators. The Bank of England recently published criteria for the introduction and oversight of cryptocurrencies in the UK. It’s not difficult to understand where Europe’s central banks are coming from on this: Facebook is reliant on a variety of different income streams.
Even with a board of governors, it may not be the wisest decision for online advertising to, in some way or another, underpin a major global economy. It only adds to the risk. With recent dropout from a number of Libra’s backers, including Visa, Mastercard, PayPal and, most recently, Booking.com, even those in the know seem to be cautious when it comes to crypto.
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Global defiance of going cashless too quickly
While the addictive allure of currency innovation is enticing, allowing private companies to define the pace of transition towards a cashless society through ‘corporate currency creep’ might be premature.
France’s La Maire argued during a recent fact finding exercise by European regulators that allowing Facebook to launch Libra into Europe’s economies would pose a significant threat to “monetary sovereignty”. La Maire said that, “it would be a global currency, held by a single player, which has more than two billion users around the world. The monetary sovereignty of states… is under threat.”
Conversely, however, the People’s Bank of China has hinted in recent weeks that the nation is almost ready to launch a digital version of its own currency, the yuan, in order to protect its own sovereignty – and has been looking very closely at exactly how Facebook plans to do it.
So while regulators and governments are still getting their heads around crypto, what do consumers think? Well, just one in five (20%) say they would choose crypto as a payment option if cash no longer existed. To add further fuel to the fire, consumers are confused over exactly who oversees crypto currency adoption, with the majority (falsely) believing that they are controlled by a central body or government. Moreover, recent reports have shown that the consumer demand for a cashless society is not as loud as we have been led to believe.
The question we should be asking, therefore, is whether the actions of those with a vested interest in removing cash from society are driving behaviours, rather than the other way round. The drastic increases in branch closures and the reduction in free-to-use ATMs makes access to cash more challenging for many.
Usage is not a proxy for preference, so rather than looking at the demand for cash, perhaps we should be looking at the consumer preference for cash. And it doesn’t require looking too far. The Mail on Sunday, for example, has drawn up a ‘Keep Our Cash Manifesto‘ to force banks and financial authorities to tackle this crisis.
Even Sweden, the country leading the European race towards a completely cashless society, has seen an increasing backlash from residents who simply are not ready to eliminate cash as a payment option.
With the right strategy
So, what is the best solution to the creeping corporate crypto problem? It is fairly obvious that it is not an either/or scenario, and that there is no simple solution to something as complex as a monetary system. Undoubtedly the most sensible plan for the future is to have a monetary system that contains a range of payment choices including both cash and crypto.
Though technology does often lead to convenience, its role should not be to replace our existing systems but rather to enhance them, providing consumers with greater choice.
Cash must remain an essential part of sovereign stability and for this reason it should continue to be protected. This not only ensures a country’s stability well into the future but it allows each of us – the mere man in the street – a say in the conversation. And because this conversation will seriously impact our livelihoods and our future, a decision around digital currencies should not be made recklessly, or in haste.